Math time! I will calculate how much AMC was supposed to be diluted vs how it is actually trading. (spoiler - it is trading as if AMC was diluted by over 6X!)
Edit - I really shouldn't have said "spoiler" in the title because apparently it hides the post... oops...I also want to note that I understand that the overall assumption is inherently flawed because I am correlating price action to only one variable. The purpose of this post is to show how absolutely ridiculous the price action is if we were operating in a neutral and fair market.
Tonight, I am going to calculate how much dilution AMC is trading like based on the daily trading activity and provide more evidence to my theory on why I believe that APE shares were "double lent"
My basic calculation is as follows:
With a constant demand (amount of money spent) and a variable float size, we can calculate the expected price. Here is a chart depicting how it may look.
Note: all the calculations here assume an equilibrium between buy and sell pressure
In this chart, the price of a stock is shown as the blue line (assuming constant demand) and the required demand to maintain a constant price is shown as the orange line.
As short interest increases from 0% (1 float) to 100% (2 floats), the price of the stock is expected to fall by 50%.
Now I am going to look at the past month of AMC price action using the same principles.
In order to do this, I am using the daily VWAP for AMC as well as the amount of money spent each day, calculated by VWAP*volume. I used an arbitrary start date of 8 August 2023 since that is before the conversion announcement and shouldn't matter if we are looking at raw dilution.
The amount of money spent each day is an average of $300 million. After the conversion, this number did not decrease notably, so I am going to assume a constant demand of $300 million/day. This number is actually completely unnecessary in the calculation because it is treated as an arbitrary constant.
The equation to calculate the change in the float of a stock is as follows
And putting numbers in...
From the price action assuming a 50/50 buy/sell ratio, the float has increased by 6.66x since 8 August.
Here is the raw data I used.
Now how much were we TOLD the float has increased by??
We were told that the float would be as follows:
https://www.sec.gov/ix?doc=/Archives/edgar/data/1411579/000110465923090981/tm2323643d1_8k.htm
We were told that 51.9 million shares (post split) would become 158.4 million shares after everything is said and done.
The new float would be 3.05x the previous float, so the assumed price at a constant demand is
According to this equation, the post conversion price SHOULD HAVE been $16.87 (disregarding APE price since that is another monster entirely)
Now for my double lend theory:
If I assume that every single APE share was lent out after conversion, we get the following equation for the new float
The price with the increased float would be $10.35 by using the same equation of VWAP(0)/float'
We are actually trading well below the expected price if APE was lent out again.
This implies to me that lending likely increased into the conversion then exploded into the double lend. I don't have the loan shares available so I will look at borrow fee as an indicator.
APE borrow increases from 3.5% on 8 August to 7.5% on 23 August. This implies that lending increased dramatically.
The same goes for AMC.
Borrow fee increased from 200% on 8 August to 991% on 24 August. Massive increase in lending followed by a fall off a cliff down, now sitting at 4.125% CTB.
Now if I assume that every possible share was lent out before the conversion then every possible converted share from APEs was lent out AND that there was 0% short interest starting on 8 August, so 100% of the float was available for lend (extreme case)
This is a bit higher than my calculated 6.66x value, the actual number falls somewhere in between the a double lend after conversion and a massive increase in lending pre-conversion in addition to a double lend afterwards. Additionally, since the CTB for AMC falls off a cliff, it implies that the number of lendable shares increased SIGNIFICANTLY. If shorts covered and returned shares, the price should increase, but continued to fall as if the float was constantly increasing (still assuming that we are trading in equilibrium). The implication is that the shares were not returned, but instead new shares were made available to lend out.
And finally... for all these equations, I assumed that APE was priced at 0 pre-conversion! If the numbers sounded ridiculous with APE completely missing from the equation, they are even more nonsensical if you realize that the conversion price SHOULD have landed between the price of AMC and APE... but ended up less than 50% of the ending value of APE alone.
Obviously we don't have access to the true data since transparency is only an illusion, but I am taking data that is available to create a logical theory. Consumer protection laws can be used to counter my argument, but wording and minutia in timelines are extremely important in the determination of how and when those rules actually apply.
I know this is a long post, but I wanted to fully lay out my thoughts so it can be properly analyzed by anyone willing.
TL;DR - AMC is trading as if the float is well over 6 times what it was back before the conversion when it should actually be only 3 times the original float, pre AMC's SEC filing. Lots of math equations were also shown and explained.
Cheers.